BREAKINGVIEWS-Fiserv activist rewind misses payments’ new tune

By Stephen Gandel

NEW YORK, Feb 18 (Reuters Breakingviews) - Investing legend Warren Buffett long warned against Wall Streeters who push for mega-deals and then for their eventual unwinding, singing the same tune of value creation all the while. Fiserv FISV.O might feature in the next verse. Pushy investor Jana Partners wants the financial technology company to refocus on its banking clients, seven years after a merger with retailer-centric First Data. It’s hard to defend the deal now that the buyer is worth around $30 billion less than the two were apart. Nonetheless, corporate retreat is discordant with the payment business’s new groove.

Fiserv is, to be fair, an obvious candidate for investor intervention. Shares plunged last fall after an internal review deemed prior financial projections to be unrealistic. As a result, the company’s previous expectations of 10% annual revenue growth were revised down to as little as 3.5%. Newly appointed CEO Mike Lyons at the time said that a strategic review was underway, but has yet to announce any divestitures. Jana has chosen this moment of uncertainty in which to take a stake.

Both the hedge fund and Lyons can point to woes stemming from the $22 billion First Data merger, which brought small-business payments processing system Clover into the fold. Former boss Frank Bisignano shifted resources to support its growth. The company’s other businesses, which account for about two-thirds of revenue, are now either stagnant or shrinking.

Fiserv is ultimately an old-guard competitor in a rapidly changing industry. Clover is growing, helped by a recent price cut, but is running up against Stripe and other fintechs. Jana’s answer is to reinvigorate the core banking business, which provides software, statement processing and other services to banks. The question is whether the unit is shrinking because of neglect or inevitability.

After all, the payments industry faces significant potential upheaval. Whether because of the rise of novel technology like stablecoins or other blockchain-enabled payment systems, or retailers like Walmart bringing more operations in-house, Fiserv could be betting on a loser. There are also yesteryear operations in the portfolio, like the company’s line in printing credit cards and distributing customer statements, which looks like a reasonable sale candidate. The unit generates about $3 billion in revenue, more than Lyons seems willing to part with. With the beat of the industry so unpredictable, though, he may have to shed any clumsy encumberments.

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CONTEXT NEWS

Jana Partners has taken a stake in Fiserv, and is pushing for divestitures, according to a February 17 report in the Wall Street Journal. Shares of the financial services company, which has reported disappointing earnings and is undergoing a reorganization, have fallen nearly 75% in the past year.